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Closing Comments

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Closing Comments

Corn

The European Central Bank shocked the financial world this morning by cutting its prime interest rate to 0.05%, acknowledging that they have essentially gone as low as they can go. Officials are talking quantitative easing next, fearful that deflation will soon be a problem in the Euro-zone. The move sent the euro tumbling with the dollar exploding higher.

Fund managers who don’t know what a corn plant looks like assume that a stronger dollar will make our commodities less competitive overseas. That leads them to sell the broader commodity sector, including grain and oilseeds. That selling combined with bearish harvest reports of high yields to send prices to new contract lows once again, with the bulk of the harvest still in front of us.

The Department of Energy reports that ethanol stocks rose to 17.7 million barrels in the week ending August 29, up from 17.3 million the previous week and up from 16.2 million the previous year. Ethanol production rose to 921K barrels per day during the week, up from 913 the previous week and up from 819K in the same week last year.

The data suggests that ethanol producers used 96.7 million bushels of corn in the week ending August 29, up from 95.9 million the previous week and up from 86.0 million the previous year. That brings estimated corn usage for the marketing year ending August 31 at more than 445 million bushels above year ago levels, which kept us on pace to reach USDA’s target for the year. Ethanol margins are generally profitable and should stay that way for some months to come.

However, the focus for now remains on the size of the crop, which looks to overwhelm demand for the year ahead. Harvest reports thus far have been from areas that actually did see some heat this year, yet yields are still coming in 20 to 30 bushels above previous high expectations. As such, prices are following our anticipated pattern of dropping sharply into harvest.

The midday GFS model turned cooler once again, similar to Wednesday’s midday run. The model suggests overnight lows mid-month in the upper 20s°F in eastern South Dakota and near the Wisconsin/Iowa border next weekend, but it doesn’t have much support from the other models. This forecast would mean a lot more to the market if it were expecting a 13 billion-bushel crop, rather than one approaching 15 billion.

Soybeans

The same dynamics that pressured corn contributed to weakness in the soybean market today. Cash sources report that Decatur bids dropped 75 cents today as a few bushels show up to meet near-term demand amid an approaching harvest.

Like corn, soybeans tried to consolidate just above Wednesday’s lows in overnight trade, but then broke to new lows during today’s pit trade hours. Speculative fund managers are believed to hold near record large short (sold) positions, but sellers continue to out-number buyers, with end users content to allow prices to come to them for new-crop supplies.

November found support today just above $10. It’s possible that traders will be reluctant to push prices below $10 ahead of next week’s USDA crop report, but they likely won’t hesitate to sell again if that support gives way. Next week’s minimal frost threat would justify more of a risk premium if the trade were expecting a 3 billion-bushel crop rather than one approaching 4 billion.

Wheat

Chicago wheat prices continued to work lower, reaching new contract lows in today’s trading session. Meanwhile, the December Kansas City contract found buying interest just above Wednesday’s lows, with quality milling wheat stocks tighter. End users likely see value at current price levels, allowing Kansas City to gain on the Chicago market once again. Minneapolis tried to follow Kansas City, but harvest pressure was too much to hold the market.

The trade currently sees the “glass as half full” with global wheat supplies. Quality milling supplies are tighter, but no shortages are seen at this point. Drought in Russia is garnering very few headlines at this time, with traders focused primarily on good rains over the Plains winter wheat belt, as well as much of Australia.

Beef

It was a volatile day in the live cattle futures market today. Prices firmed to the $3 daily limit higher early today on strengthening fundamentals. However, traders got cold feet at that point and rushed to take profits fearing that prices may have gotten too high, particularly with the feeder cattle market probing new contract highs. The sell-off was short lived though, with mid-morning boxed beef report showed strong movement on firmer prices, chasing prices back for another period of limit-higher trade before moderating again.

There were rumors of a few cattle moving in the northern Plains at $160 per cwt on a live basis, but more significant was a report over the noon hour of light trade in Nebraska at mostly $158 to $160, up from mostly $155 to $157 the previous week. This supported the lead October contract to trade better than $2 higher at the end of the session near $157.50. Profit taking was more of a factor for the deferred contracts.

Feeder cattle found good support from cheap corn and strong fat cattle prices. The September contract traded to a new contract high of $225.15 before pulling back a bit. The latest CME cash index came in at $221.35 per cwt, up $2.60 from pre-Labor Day levels.

Product movement was strong Wednesday at 266 loads on firmer prices. Choice cuts were up $1.47 to $247.58 per cwt, while Select cuts were up $0.11 to $233.94. This pushed the Choice/Select spread to $13.64 per cwt, up from $12.28 the previous day and its strongest level since May 7. Movement at mid-morning today was also strong at 150 loads. Choice cuts were up $0.55, while Select cuts were up $0.20 per cwt.

Pork

October lean hogs pushed higher on expectations of higher cash hog prices today, with the cash market steady to $1 higher. The latest CME cash index came in at $95.67 per cwt, down $0.78 on the day. It was the 33rd straight trading day with a lower index, with losses over that period at $38.50 per cwt. However, the index is expected to turn higher over the next few days.

Product movement reached 478 loads on Wednesday, up from 358 loads the previous day and up from 432 loads the previous week. The composite pork product price dropped to $101.59 per cwt, down $0.85 on the day. Movement at midday today was very routine at 158 loads, with the composite price down another $0.33 at $101.26 per cwt.

The October contract was higher today, as noted, but the deferred contracts came under considerable pressure, with the April contract touching the $3 daily limit lower. Selling was spurred by reports that a second vaccine has received conditional approval for treatment of the PED virus. Once again, this is not expected to be the “silver bullet” that eradicates the disease, but traders were sellers today until they can learn more about it.

Closing Market Snapshot

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

 

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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